Is Extreme Greed a Signal to Sell? Breaking Down the CNN Fear & Greed Index

Last weekend, stock market Twitter lit up with screenshots of the CNN Fear & Greed Index flashing an “Extreme Greed” reading. Many traders immediately pointed to this as a sign the market was near a top. One of the most shared quotes? Warren Buffett’s famous advice:

“Be fearful when others are greedy, and greedy when others are fearful.”

But how accurate is that in practice?
Is extreme greed really a warning sign… or is it just noise?

At Aion Finance, we believe that history doesn’t repeat—but it often rhymes. In this blog post, we break down what the Fear & Greed Index really measures and what our data shows about how to trade during extreme sentiment conditions.

What Is the CNN Fear & Greed Index?

The Fear & Greed Index is a composite sentiment gauge made up of seven different indicators:

1. Market Momentum – S&P 500 vs. 125-day moving average
2. Stock Price Strength – Ratio of NYSE stocks hitting 52-week highs vs. lows
3. Stock Price Breadth – McClellan Volume Summation Index
4. Put/Call Ratio – Relative demand for bullish vs. bearish options
5. Market Volatility – VIX readings
6. Safe Haven Demand – Bonds vs. stocks
7. Junk Bond Demand – Yield spreads between junk and investment-grade debt

Each component is scored from 0–100, then averaged. A score above 75 indicates Extreme Greed. Below 25 signals Extreme Fear.

Are Extreme Greed Readings Bearish?

To test this, we plotted 10 years of Fear & Greed Index readings against the S&P 500.

Surprisingly, major tops like 2022 and early 2025 occurred without extreme greed readings. In fact, some tops appeared when sentiment was still fearful. So while the index can reflect crowd mood, it doesn't always predict turning points.

What Are the Best Option Trades During Extreme Greed?

This is where it gets interesting.

Using Aion’s proprietary options analytics platform, we simulated thousands of trades that occurred when the Fear & Greed Index was above 75. Our methodology:

• Buy SPY calls and puts at various deltas (10, 30, 50, 70)
• At multiple durations to expiration (1, 4, 7, 14, 28, 42 DTE)
• Simulate each trade, hold until expiration, and calculate actual PnL
• Aggregate performance by delta and DTE to find patterns

🧪 What We Found:

• Buying puts during extreme greed? Not profitable on average.
• Buying at-the-money calls (50 delta) has mildly positive returns, but not statistically better than baseline
• Selling far OTM calls (10 delta, short DTE)? Surprisingly profitable

Conclusion: Greed Isn’t Always a Top

The CNN Fear & Greed Index is a useful contextual indicator, but not a standalone trading signal.
Our data shows that shorting the market during extreme greed is not a high-probability play. Instead:

• Avoid buying puts blindly
• Consider selling short-dated, far OTM calls to pick up premium
• Use data—not emotion—as your edge

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